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State retakes control of heavy manufacturer ZTS

Heavy manufacturer ZTS Martinské Strojárne is set to fire 830 of its remaining 2,270 workers in 1999, a plan that discomfits the Economy Ministry, which is already battling official national unemployment of 15.6%.
But changes to the company's statutes and leadership on February 2 mean that the government can now take steps to prevent management from gutting the firm.
Alica Ďurianová, spokeswoman for the Economy Ministry, told The Slovak Spectator on February 4 that the changes reverse a controversial clause in the company statutes which had prevented the state, as majority owner, from recalling management and controlling the strategy of the company. The ministry, she said, would now move quickly to reassert control over ZTS.

Heavy manufacturer ZTS Martinské Strojárne is set to fire 830 of its remaining 2,270 workers in 1999, a plan that discomfits the Economy Ministry, which is already battling official national unemployment of 15.6%.

But changes to the company's statutes and leadership on February 2 mean that the government can now take steps to prevent management from gutting the firm.

Alica Ďurianová, spokeswoman for the Economy Ministry, told The Slovak Spectator on February 4 that the changes reverse a controversial clause in the company statutes which had prevented the state, as majority owner, from recalling management and controlling the strategy of the company. The ministry, she said, would now move quickly to reassert control over ZTS.

Entrenched management

The ZTS case represents yet another battle in the new cabinet's war against the managements of state firms appointed to their posts under the cabinet of former Prime Minister Vladimír Mečiar. Under Mečiar, the Economy Ministry says, incompetent executives at many state firms brought their companies to the brink of collapse. At enormous cost to the state, these failing businesses were then artificially kept alive to hide the real state of the economy from the public.

"For the last eight years, heavy manufacturing companies such as ZTS took the place of state welfare - workers were not on the streets but employed in factories, even though they didn't produce anything," said Ján Minár, ZTS spokesman, adding that the firm's current crisis called for drastic re-structuring. "That's what we have to build on now," he said.

Company planned cuts

However, ZTS management's 're-structuring' plans, involving mass firings, are unacceptable to the state. In the last two years, ZTS has sacked more than 1,200 workers and is about to displace another 830 this year. The firm's workforce has fallen from a high of 4,674 employees in 1995 to 2,270 in 1998.

The main reason for the current crisis is that armaments production - previously the core of the firm's business - has fallen drastically since the early 1990's. In the last decade, the share of armaments production on total output has declined at ZTS from 40-50% to 2-3% in 1998. Overall production has dropped from 1.993 billion Sk ($55.4 million) in 1995 to 818 million Sk ($22.7 million) in 1998.

ZTS's Minár added that his company's debts were another important factor in its woes. "You can't live on loans for a long time," he said. "Interest rates have been too high, up to 30%, and that's a millstone around your neck." Minár said that of ZTS's 3.1 billion Sk in basic capital, 1 billion Sk was represented by liabilities, of which 30% was loans.

In planning their recovery strategy, ZTS executives are convinced of one thing - that the state is responsible for their current problems. "The current situation in the company is a result of ten years of non-systematic approaches from the state," said Jaroslav Balogh, general director of ZŤS.

State plans investment

As of February 2, however, ZTS management no longer has the last word on strategy. The Economy Ministry recalled Július Tóth, president of DMD Holding, a company which indirectly owns a majority stake in ZTS, and replaced him with Ľubomír Gažák.

The state is now free to administer its prescription for ZTS, which involves promoting its new production at home and abroad. At a January 29 press conference in the northern Slovak town of Žilina, Economy Minister Ľudovít Černák said that with the help of trade counsellors abroad, the ministry had already won a contract for ZTS to export 800 tractors to Peru and 50 tanks to India. "We just did what the company's management was supposed to do a long time ago," he said.

The government has also been working on a scheme with Volkswagen Slovakia in the northern Slovak town of Martin which, it hopes, will provide a safety net to dismissed ZTS workers. A new plant called AutoMartin will employ up to 1,450 workers to make car parts for Volkswagen's Bratislava factory. The state has already invested 100 million Sk in the project, and is set to add another 181 million Sk to this sum by the end of March.

Who holds the reins?

The battle for control of ZTS has been a long and bloody one. Prior to October last year, the state owned a majority stake in ZTS through a company called DMD Invest, which still holds 75.35% of ZTS shares. DMD Invest is a subsidiary of DMD Holding,, a giant firm which holds majority stakes in most major Slovak heavy manufacturing companies.

On October 29, the state's 60.72% stake in DMD Holding was reduced to 18.8% when the FNM state privatisation agency inexplicably transferred 42% of shares to a new firm called DMD Progress. The state thus lost control of DMD Invest and ZTS at the same time.

DMD Holding's new owners then refused to return the shares to the state, and until February 2 were in a court battle with the Economy Ministry to defend their newly-won property.

But now, having regained control of DMD Holding,, the state has the power to call the shots at ZTS. Ďurianová said that ZTS could only win from being back under state control, as ZTS director Balogh had already appealed for help in selling his firm's products.

Ďurianová added that the ZTS crisis was only one of many in the heavy manufacturing sector, and added that similiar problems were being encountered at "[TV maker] OTF Nižná, [copper smelter] Kovohuty Krompachy, [engineering firm] Sipox Holding, [bridge builder] Mostárne Brezno and others."

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